Talk exit planning with Peter Christman, and he'll throw a bunch of statistics at you. The numbers can be grim.
Here are two to consider:
• The typical business owner, Christman says, has 90 percent of his (or her) net worth tied up in his business. For most, the business represents a huge chunk of expected retirement funds.
• Three-quarters of today's business owners will be unhappy when they sell, mostly because their expectations are too high.
Why are those expectations apparently out of line with the marketplace? Because, Christman says, "Business owners focus on lifestyle strategies, not value-building strategies. They're not investing money back in the business. They're investing in a lifestyle."
One fairly typical illustration: "A business owner makes $1 million," Christman says, "but shows just $100,000 to Uncle Sam." The rest of the money, Christman says, "He's writing off."
The write-offs can backfire, however.
"When the owner goes to sell the business, the buyer says, 'You only make $100,000. I'll give you $400,000 for the company,'" Christman continues.
"That offer could have been a multiple of $1 million rather than $100,000 if the owner had invested in building value in the business rather than on lifestyle issues."
Charles Evans doesn't seem likely to become one of Christman's statistics. A real entrepreneur although Charles Evans isn't his real name, Evans is carefully planning his departure from his small north suburban industrial firm.
"What happens," Evans explains, "is that you realize your own mortality. What happens to my company after me? What happens to my life?"
Evans' preparation focuses on retirement, but he is well aware that "There could be a catastrophic event" that would require succession planning as well.
Evans, who has no family members who can take over the business, is spending significant time evaluating his company's strengths and weaknesses as he seeks to increase value and make the company more salable. "I want to make certain the gaps will be filled when I leave.
"I look at how (my departure) will affect people," Evans says. "There should be accountability throughout the company -- at least at the leadership level -- that will put us in a better position."
Strengthening the company culture is another of Evans' goals. "We are successful in part because we do things in a certain way," Evans explains. "I want to make certain those processes can be replicated."
Christman, a former investment banker who co-founded the Exit Planning Institute, Algonquin, and now mentors business owners through The Christman Group, Chicago, aligns the exit planning process with the traditional three-legged stool.
"Do everything possible to maximize the value of the business," Christman says in describing the first planning leg. "Then make personal plans. Take care of your estate. Taxes. Finances. That's the second leg. And develop a life plan (to guide you) when you leave the business."
• Jim Kendall welcomes comments at JKendall@121MarketingResources.com © 2013 121 Marketing Resources Inc.